Small Businesses See Big Hikes in Health Plan Costs

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Health insurance premium renewal rates increased an average of 6.2 percent for all plans in 2015, up from the previous year’s 5.6 percent rise, according to survey data released in April by United Benefit Advisors (UBA), a network of independent employee benefits advisory organizations. Small businesses with fewer than 25 employees, which account for 5 million U.S. employers, were hit the hardest, UBA found.

In 2014, employers overwhelmingly took advantage of early renewal strategies to delay moving to higher-cost plans compliant with the Affordable Care Act (ACA), according to the analysis. “These delay tactics ran out in 2015 and, as a result, these small businesses (that make up the majority of American businesses), were forced into higher-cost, community-rated ACA plans,” UBA’s report noted. Without the negotiating power of bigger employers, many small employers were left with no cost-containment strategies other than reducing coverage and increasingly shifting costs to employees.

Costs Vary by Region and State

The average annual health plan cost per enrolled employee for all plan types last year was $9,736 (employers paid $6,403 of this cost, while employees paid $3,333). This was a 2.4 percent increase in cost per enrolled employee from the previous year. The rise in cost per employee was relatively modest because more employees enrolled in plans that weren’t as “rich” (with higher deductions but lower premiums, and/or narrower provider networks, for instance).

The Northeast continued to be the region with the highest average annual health insurance cost per employee in the U.S., having four of the five highest cost states. “Plans in the Northeast continue to cost the most since they typically have low or no deductibles, contain more state-mandated benefits, and feature higher in-network co-insurance, among other factors,” said Matt Weimer, director of strategic solutions at Diversified Insurance Solutions, a UPA partner firm in Brookfield, Wis., commenting on the findings.

But the state with the highest average annual cost per employee was on the other side of the continent: Alaska topped the chart with an average annual cost of $12,822 per employee last year—27.4 percent above the national average of $9,736 per employee annually.

On the other end of the spectrum, Hawaii had the lowest average annual cost per employee at $7,610, or 24.5 percent below the national average.

“Hawaii is a state that was on the forefront of managed care and adopted an integrated care model as a strategy to address cost, quality and access over 40 years ago,” explained Lon Wilson, president & CEO of The Wilson Agency, a UBA partner firm in Anchorage, Alaska.

“Alaska, on the other hand, has resisted most forms of care management, not the least of which is the carrier’s limited ability to contract with physicians. We are just now beginning to see collaboration between payers, providers and hospitals, but we are way behind the rest of the country. This, coupled with our small population, geographic size, lack of transportation infrastructure and cultural diversity add up to a perfect storm of high cost of care, large variations in quality and access challenges,” said Wilson.

Premiums increased the most for singles in Louisiana (23.5 percent) and California (17.2 percent), while families saw the biggest premium increase in South Carolina (7.6 percent). Connecticut was the only state to see a modest decrease in single premiums (5.1 percent). Decreases in family premiums were largely nonexistent, according to the survey.

Health Plan Options

More than half (53.7 percent) of all employers offered one health plan to employees last year, while 28.7 percent offerred two plan options, and 17.6 percent offerred three or more options.

The percentage of employers offering three or more plans is of particular interest since it represents nearly a 28 percent increase over the past five years. “More and more, employers are offering expanded choices to employees, either through private exchange solutions or by simply adding high-, medium- and low-cost options—a trend we believe will continue to increase,” UBA found. “Not only do employees get more options, but employers can introduce lower-cost plans that ultimately may attract enrollment and lower their costs.”

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.